---
kind: "range"
citation: "26 U.S.C. §§ 56–59"
title: "26"
from: "56"
to: "59"
count: 5
release: "119-102"
url: "https://uscodex.org/usc/26/56..59"
---

# §56. Adjustments in computing alternative minimum taxable income

- (a) **Adjustments applicable to all taxpayers—** In determining the amount of the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) for any [taxable year](/usc/26/441.md?p=b) the following treatment shall apply (in lieu of the treatment applicable for purposes of computing the regular tax):
  - (1) **Depreciation—**
    - (A) **In general—**
      - (i) **Property other than certain personal property—** Except as provided in [clause (ii)](#a-1-A-ii), the depreciation deduction allowable under [section 167](/usc/26/167.md) with respect to any tangible [property](/usc/26/614.md?p=a) placed in service after December 31, 1986, shall be determined under the alternative system of [section 168(g)](/usc/26/168.md?p=g). In the case of [property](/usc/26/614.md?p=a) placed in service after December 31, 1998, the preceding sentence shall not apply but [clause (ii)](#a-1-A-ii) shall continue to apply.
      - (ii) **150-percent declining balance method for certain property—** The method of depreciation used shall be—
        - (I) the 150 percent declining balance method,
        - (II) switching to the straight line method for the 1st [taxable year](/usc/26/441.md?p=b) for which using the straight line method with respect to the adjusted basis as of the beginning of the year will yield a higher allowance.

      The preceding sentence shall not apply to any [section 1250](/usc/26/1250.md) [property](/usc/26/614.md?p=a) (as defined in [section 1250(c)](/usc/26/1250.md?p=c)) (and the straight line method shall be used for such [section 1250](/usc/26/1250.md) [property](/usc/26/614.md?p=a)) or to any other [property](/usc/26/614.md?p=a) if the depreciation deduction determined under [section 168](/usc/26/168.md) with respect to such other [property](/usc/26/614.md?p=a) for purposes of the regular tax is determined by using the straight line method.

    - (B) **Exception for certain property—** This paragraph shall not apply to [property](/usc/26/614.md?p=a) described in paragraph [(1)](/usc/26/168.md?p=f-1), [(2)](/usc/26/168.md?p=f-2), [(3)](/usc/26/168.md?p=f-3), or [(4)](/usc/26/168.md?p=f-4) of section 168(f), or in [section 168(e)(3)(C)(iv)](/usc/26/168.md?p=e-3-C-iv).
    - (C) **Coordination with transitional rules—**
      - (i) **In general—** This paragraph shall not apply to [property](/usc/26/614.md?p=a) placed in service after December 31, 1986, to which the amendments made by section 201 of the Tax Reform Act of 1986 do not apply by reason of section 203, 204, or 251(d) of such Act.
      - (ii) **Treatment of certain property placed in service before 1987—** This paragraph shall apply to any [property](/usc/26/614.md?p=a) to which the amendments made by section 201 of the Tax Reform Act of 1986 apply by reason of an election under section 203(a)(1)(B) of such Act without regard to the requirement of [subparagraph (A)](#a-1-A) that the [property](/usc/26/614.md?p=a) be placed in service after December 31, 1986.
    - (D) **Normalization rules—** With respect to public utility [property](/usc/26/614.md?p=a) described in [section 168(i)(10)](/usc/26/168.md?p=i-10), the [Secretary](/usc/26/7701.md?p=a-11-B) shall prescribe the requirements of a normalization method of accounting for this section.
  - (2) **Mining exploration and development costs—**
    - (A) **In general—** With respect to each mine or other natural deposit (other than an oil, gas, or geothermal well) of the [taxpayer](/usc/26/1313.md?p=b), the amount allowable as a deduction under section [616(a)](/usc/26/616.md?p=a) or [617(a)](/usc/26/617.md?p=a) (determined without regard to [section 291(b)](/usc/26/291.md?p=b)) in computing the regular tax for costs [paid or incurred](/usc/26/7701.md?p=a-25) after December 31, 1986, shall be capitalized and amortized ratably over the 10-year period beginning with the [taxable year](/usc/26/441.md?p=b) in which the expenditures were made.
    - (B) **Loss allowed—** If a loss is sustained with respect to any [property](/usc/26/614.md?p=a) described in [subparagraph (A)](#a-2-A), a deduction shall be allowed for the expenditures described in [subparagraph (A)](#a-2-A) for the [taxable year](/usc/26/441.md?p=b) in which such loss is sustained in an amount equal to the lesser of—
      - (i) the amount allowable under [section 165(a)](/usc/26/165.md?p=a) for the expenditures if they had remained capitalized, or
      - (ii) the amount of such expenditures which have not previously been amortized under [subparagraph (A)](#a-2-A).
  - (3) **Treatment of certain long-term contracts—** In the case of any long-term contract entered into by the [taxpayer](/usc/26/1313.md?p=b) on or after March 1, 1986, the [taxable income](/usc/26/63.md?p=b) from such contract shall be determined under the percentage of completion method of accounting (as modified by [section 460(b)](/usc/26/460.md?p=b)). For purposes of the preceding sentence, in the case of a contract described in [section 460(e)(1)](/usc/26/460.md?p=e-1), the percentage of the contract completed shall be determined under [section 460(b)(1)](/usc/26/460.md?p=b-1) by using the simplified procedures for allocation of costs prescribed under [section 460(b)(3)](/usc/26/460.md?p=b-3). The first sentence of this paragraph shall not apply to any residential construction contract (as defined in [section 460(e)(4)](/usc/26/460.md?p=e-4)).
  - (4) **Alternative tax net operating loss deduction—** The [alternative tax net operating loss deduction](#d-1) shall be allowed in lieu of the net operating loss deduction allowed under [section 172](/usc/26/172.md).
  - (5) **Pollution control facilities—** In the case of any certified pollution [control](/usc/26/368.md?p=a-2-H-i) facility placed in service after December 31, 1986, the deduction allowable under [section 169](/usc/26/169.md) (without regard to [section 291](/usc/26/291.md)) shall be determined under the alternative system of [section 168(g)](/usc/26/168.md?p=g). In the case of such a facility placed in service after December 31, 1998, such deduction shall be determined under [section 168](/usc/26/168.md) using the straight line method.
  - (6) **Adjusted basis—** The adjusted basis of any [property](/usc/26/614.md?p=a) to which paragraph [(1)](#a-1) or [(5)](#a-5) applies (or with respect to which there are any expenditures to which [paragraph (2)](#a-2) or [subsection (b)(2)](#b-2) applies) shall be determined on the basis of the treatment prescribed in paragraph [(1)](#a-1), [(2)](#a-2), or [(5)](#a-5), or [subsection (b)(2)](#b-2), whichever applies.
  - (7) **Section 87 not applicable—** [Section 87](/usc/26/87.md) (relating to alcohol fuel credit) shall not apply.
- (b) **Adjustments applicable to individuals—** In determining the amount of the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) of any [taxpayer](/usc/26/1313.md?p=b) (other than a [corporation](/usc/26/7701.md?p=a-3)), the following treatment shall apply (in lieu of the treatment applicable for purposes of computing the regular tax):
  - (1) **Limitation on deductions—**
    - (A) **In general—** No deduction shall be allowed—
      - (i) for any miscellaneous itemized deduction (as defined in [section 67(b)](/usc/26/67.md?p=b)), or
      - (ii) for any taxes described in paragraph [(1)](/usc/26/164.md?p=a-1), [(2)](/usc/26/164.md?p=a-2), or [(3)](/usc/26/164.md?p=a-3) of section 164(a) or [clause (ii)](/usc/26/164.md?p=b-5-A-ii) of section 164(b)(5)(A).

      [Clause (ii)](#b-1-A-ii) shall not apply to any amount allowable in computing [adjusted gross income](/usc/26/62.md?p=a).

    - (B) **Interest—** In determining the amount allowable as a deduction for [interest](/usc/26/856.md?p=f-1), subsections [(d)](/usc/26/163.md?p=d) and [(h)](/usc/26/163.md?p=h) of section 163 shall apply, except that—
      - (i) in lieu of the exception under [section 163(h)(2)(D)](/usc/26/163.md?p=h-2-D), the term “personal interest” shall not include any [qualified housing interest](#e-1) (as defined in [subsection (e)](#e)),
      - (ii) [interest](/usc/26/856.md?p=f-1) on any [specified private activity bond](/usc/26/57.md?p=a-5-C-i) (and any amount treated as [interest](/usc/26/856.md?p=f-1) on a [specified private activity bond](/usc/26/57.md?p=a-5-C-i) under [section 57(a)(5)(B)](/usc/26/57.md?p=a-5-B)), and any deduction referred to in [section 57(a)(5)(A)](/usc/26/57.md?p=a-5-A), shall be treated as includible in gross income (or as deductible) for purposes of applying [section 163(d)](/usc/26/163.md?p=d),
      - (iii) in lieu of the exception under [section 163(d)(3)(B)(i)](/usc/26/163.md?p=d-3-B-i), the term “[investment interest](/usc/26/163.md?p=d-3-A)” shall not include any [qualified housing interest](#e-1) (as defined in [subsection (e)](#e)), and
      - (iv) the adjustments of this section and sections [57](/usc/26/57.md) and [58](/usc/26/58.md) shall apply in determining net investment income under [section 163(d)](/usc/26/163.md?p=d).
    - (C) **Treatment of certain recoveries—** No recovery of any tax to which [subparagraph (A)(ii)](#b-1-A-ii) applied shall be included in gross income for purposes of determining [alternative minimum taxable income](/usc/26/55.md?p=b-1-D).
    - (D) **Standard deduction and deduction for personal exemptions not allowed—** The standard deduction under [section 63(c)](/usc/26/63.md?p=c), the deduction for personal exemptions under [section 151](/usc/26/151.md), and the deduction under [section 642(b)](/usc/26/642.md?p=b) shall not be allowed.
    - (E) **Section 68 not applicable—** [Section 68](/usc/26/68.md) shall not apply.
  - (2) **Circulation and research and experimental expenditures—**
    - (A) **In general—** The amount allowable as a deduction under section [173](/usc/26/173.md), [174(a)](/usc/26/174.md?p=a), or [174A(a)](/usc/26/174A.md?p=a) in computing the regular tax for amounts [paid or incurred](/usc/26/7701.md?p=a-25) after December 31, 1986, shall be capitalized and—
      - (i) in the case of circulation expenditures described in [section 173](/usc/26/173.md), shall be amortized ratably over the 3-year period beginning with the [taxable year](/usc/26/441.md?p=b) in which the expenditures were made, or
      - (ii) in the case of [foreign](/usc/26/7701.md?p=a-5) research or experimental expenditures described in [section 174(a)](/usc/26/174.md?p=a) and [domestic](/usc/26/7701.md?p=a-4) research or experimental expenditures in [section 174A(a)](/usc/26/174A.md?p=a), shall be amortized ratably over the 10-year period beginning with the [taxable year](/usc/26/441.md?p=b) in which the expenditures were made.
    - (B) **Loss allowed—** If a loss is sustained with respect to any [property](/usc/26/614.md?p=a) described in [subparagraph (A)](#b-2-A), a deduction shall be allowed for the expenditures described in [subparagraph (A)](#b-2-A) for the [taxable year](/usc/26/441.md?p=b) in which such loss is sustained in an amount equal to the lesser of—
      - (i) the amount allowable under [section 165(a)](/usc/26/165.md?p=a) for the expenditures if they had remained capitalized, or
      - (ii) the amount of such expenditures which have not previously been amortized under [subparagraph (A)](#b-2-A).
    - (C) **Exception for certain research and experimental expenditures—** If the [taxpayer](/usc/26/1313.md?p=b) materially participates (within the meaning of [section 469(h)](/usc/26/469.md?p=h)) in an activity, this paragraph shall not apply to any amount allowable as a deduction under section [174(a)](/usc/26/174.md?p=a) or [174A(a)](/usc/26/174A.md?p=a) for expenditures [paid or incurred](/usc/26/7701.md?p=a-25) in connection with such activity.
  - (3) **Treatment of incentive stock options—** [Section 421](/usc/26/421.md) shall not apply to the transfer of [stock](/usc/26/7701.md?p=a-7) acquired pursuant to the exercise of an incentive [stock](/usc/26/7701.md?p=a-7) option (as defined in [section 422](/usc/26/422.md)). [Section 422(c)(2)](/usc/26/422.md?p=c-2) shall apply in any case where the disposition and the inclusion for purposes of this part are within the same [taxable year](/usc/26/441.md?p=b) and such section shall not apply in any other case. The adjusted basis of any [stock](/usc/26/7701.md?p=a-7) so acquired shall be determined on the basis of the treatment prescribed by this paragraph.
- (c) **Repealed. Pub. L. 115–97, title I, § 12001(b)(8)(A), Dec. 22, 2017, 131 Stat. 2093—**
- (d) **Alternative tax net operating loss deduction defined—**
  - (1) **In general—** For purposes of [subsection (a)(4)](#a-4), the term “alternative tax net operating loss deduction” means the net operating loss deduction allowable for the [taxable year](/usc/26/441.md?p=b) under [section 172](/usc/26/172.md), except that—
    - (A) the amount of such deduction shall not exceed the sum of—
      - (i) the lesser of—
        - (I) the amount of such deduction attributable to net operating losses (other than the deduction described in [clause (ii)(I)](#d-1-A-ii-I)), or
        - (II) 90 percent of [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) determined without regard to such deduction and the deduction under section 199,[^1] plus
      - (ii) the lesser of—
        - (I) the amount of such deduction attributable to an applicable net operating loss with respect to which an election is made under [section 172(b)(1)(H)](/usc/26/172.md) (as in effect before its repeal by the Tax Increase Prevention Act of 2014), or
        - (II) [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) determined without regard to such deduction and the deduction under [section 199](/usc/26/199.md)[^1] reduced by the amount determined under [clause (i)](#d-1-A-i), and
    - (B) in determining the amount of such deduction—
      - (i) the net operating loss (within the meaning of [section 172(c)](/usc/26/172.md?p=c)) for any loss year shall be adjusted as provided in [paragraph (2)](#d-2), and
      - (ii) appropriate adjustments in the application of [section 172(b)(2)](/usc/26/172.md?p=b-2) shall be made to take into account the limitation of [subparagraph (A)](#d-1-A).
  - (2) **Adjustments to net operating loss computation—**
    - (A) **Post-1986 loss years—** In the case of a loss year beginning after December 31, 1986, the net operating loss for such year under [section 172(c)](/usc/26/172.md?p=c) shall—
      - (i) be determined with the adjustments provided in this section and [section 58](/usc/26/58.md), and
      - (ii) be reduced by the items of tax preference determined under [section 57](/usc/26/57.md) for such year.

      An item of tax preference shall be taken into account under [clause (ii)](#d-2-A-ii) only to the extent such item increased the amount of the net operating loss for the [taxable year](/usc/26/441.md?p=b) under [section 172(c)](/usc/26/172.md?p=c).

    - (B) **Pre-1987 years—** In the case of loss years beginning before January 1, 1987, the amount of the net operating loss which may be carried over to [taxable years](/usc/26/441.md?p=b) beginning after December 31, 1986, for purposes of [paragraph (2)](#d-2), shall be equal to the amount which may be carried from the loss year to the first [taxable year](/usc/26/441.md?p=b) of the [taxpayer](/usc/26/1313.md?p=b) beginning after December 31, 1986.
- (e) **Qualified housing interest—** For purposes of this part—
  - (1) **In general—** The term “qualified housing interest” means [interest](/usc/26/856.md?p=f-1) which is qualified residence [interest](/usc/26/856.md?p=f-1) (as defined in [section 163(h)(3)](/usc/26/163.md?p=h-3)) and is [paid or accrued](/usc/26/7701.md?p=a-25) during the [taxable year](/usc/26/441.md?p=b) on indebtedness which is incurred in acquiring, constructing, or substantially improving any [property](/usc/26/614.md?p=a) which—
    - (A) is the principal residence (within the meaning of [section 121](/usc/26/121.md)) of the [taxpayer](/usc/26/1313.md?p=b) at the time such [interest](/usc/26/856.md?p=f-1) accrues, or
    - (B) is a [qualified dwelling](#e-2) which is a qualified residence (within the meaning of [section 163(h)(5)](/usc/26/163.md?p=h-5)).

    Such term also [includes](/usc/26/7701.md?p=c) [interest](/usc/26/856.md?p=f-1) on any indebtedness resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence; but only to the extent that the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness immediately before the refinancing.

  - (2) **Qualified dwelling—** The term “qualified dwelling” means any—
    - (A) house,
    - (B) apartment,
    - (C) condominium, or
    - (D) mobile home not used on a transient basis (within the meaning of [section 7701(a)(19)(C)(v)](/usc/26/7701.md?p=a-19-C-v)),

    [including](/usc/26/7701.md?p=c) all structures or other [property](/usc/26/614.md?p=a) appurtenant thereto.

  - (3) **Special rule for indebtedness incurred before July 1, 1982—** The term “[qualified housing interest](#e-1)” [includes](/usc/26/7701.md?p=c) [interest](/usc/26/856.md?p=f-1) which is qualified residence [interest](/usc/26/856.md?p=f-1) (as defined in [section 163(h)(3)](/usc/26/163.md?p=h-3)) and is [paid or accrued](/usc/26/7701.md?p=a-25) on indebtedness which—
    - (A) was incurred by the [taxpayer](/usc/26/1313.md?p=b) before July 1, 1982, and
    - (B) is secured by [property](/usc/26/614.md?p=a) which, at the time such indebtedness was incurred, was—
      - (i) the principal residence (within the meaning of [section 121](/usc/26/121.md)) of the [taxpayer](/usc/26/1313.md?p=b), or
      - (ii) a [qualified dwelling](#e-2) used by the [taxpayer](/usc/26/1313.md?p=b) (or any member of his family (within the meaning of [section 267(c)(4)](/usc/26/267.md?p=c-4))).

# §56A. Adjusted financial statement income

- (a) **In general—** For purposes of this part, the term “adjusted financial statement income” means, with respect to any [corporation](/usc/26/7701.md?p=a-3) for any [taxable year](/usc/26/441.md?p=b), the net income or loss of the [taxpayer](/usc/26/1313.md?p=b) set forth on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b) for such [taxable year](/usc/26/441.md?p=b), adjusted as provided in this section.
- (b) **Applicable financial statement—** For purposes of this section, the term “applicable financial statement” means, with respect to any [taxable year](/usc/26/441.md?p=b), an applicable financial statement (as defined in [section 451(b)(3)](/usc/26/451.md?p=b-3) or as specified by the [Secretary](/usc/26/7701.md?p=a-11-B) in regulations or other guidance) which covers such [taxable year](/usc/26/441.md?p=b).
- (c) **General adjustments—**
  - (1) **Statements covering different taxable years—** Appropriate adjustments shall be made in [adjusted financial statement income](#a) in any case in which an [applicable financial statement](#b) covers a period other than the [taxable year](/usc/26/441.md?p=b).
  - (2) **Special rules for related entities—**
    - (A) **Consolidated financial statements—** If the financial results of a [taxpayer](/usc/26/1313.md?p=b) are reported on the [applicable financial statement](#b) for a group of entities, rules similar to the rules of [section 451(b)(5)](/usc/26/451.md?p=b-5) shall apply.
    - (B) **Consolidated returns—** Except as provided in regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), if the [taxpayer](/usc/26/1313.md?p=b) is part of an [affiliated group](/usc/26/1504.md?p=a-1) of [corporations](/usc/26/7701.md?p=a-3) filing a consolidated [return](/usc/26/6103.md?p=b-1) for any [taxable year](/usc/26/441.md?p=b), [adjusted financial statement income](#a) for such group for such [taxable year](/usc/26/441.md?p=b) shall take into account items on the group’s [applicable financial statement](#b) which are properly allocable to members of such group.
    - (C) **Treatment of dividends and other amounts—** In the case of any [corporation](/usc/26/7701.md?p=a-3) which is not included on a consolidated [return](/usc/26/6103.md?p=b-1) with the [taxpayer](/usc/26/1313.md?p=b), [adjusted financial statement income](#a) of the [taxpayer](/usc/26/1313.md?p=b) with respect to such other [corporation](/usc/26/7701.md?p=a-3) shall be determined by only taking into account the [dividends](/usc/26/316.md?p=b-2-A) received from such other [corporation](/usc/26/7701.md?p=a-3) (reduced to the extent provided by the [Secretary](/usc/26/7701.md?p=a-11-B) in regulations or other guidance) and [other amounts](/usc/26/101.md?p=a-2) which are includible in gross income or deductible as a loss under this chapter (other than amounts required to be included under sections [951](/usc/26/951.md) and [951A](/usc/26/951A.md) or such [other amounts](/usc/26/101.md?p=a-2) as provided by the [Secretary](/usc/26/7701.md?p=a-11-B)) with respect to such other [corporation](/usc/26/7701.md?p=a-3).
    - (D) **Treatment of partnerships—**
      - (i) **In general—** Except as provided by the [Secretary](/usc/26/7701.md?p=a-11-B), if the [taxpayer](/usc/26/1313.md?p=b) is a [partner](/usc/26/761.md?p=b) in a [partnership](/usc/26/7701.md?p=a-2), [adjusted financial statement income](#a) of the [taxpayer](/usc/26/1313.md?p=b) with respect to such [partnership](/usc/26/7701.md?p=a-2) shall be adjusted to only take into account the [taxpayer](/usc/26/1313.md?p=b)’s distributive share of [adjusted financial statement income](#a) of such [partnership](/usc/26/7701.md?p=a-2).
      - (ii) **Adjusted financial statement income of partnerships—** For the purposes of this part, the [adjusted financial statement income](#a) of a [partnership](/usc/26/7701.md?p=a-2) shall be the [partnership](/usc/26/7701.md?p=a-2)’s net income or loss set forth on such [partnership](/usc/26/7701.md?p=a-2)’s [applicable financial statement](#b) (adjusted under rules similar to the rules of this section).
  - (3) **Adjustments to take into account certain items of foreign income—**
    - (A) **In general—** If, for any [taxable year](/usc/26/441.md?p=b), a [taxpayer](/usc/26/1313.md?p=b) is a [United States shareholder](/usc/26/951.md?p=b) of one or more [controlled foreign corporations](/usc/26/988.md?p=a-3-C), the [adjusted financial statement income](#a) of such [taxpayer](/usc/26/1313.md?p=b) with respect to such [controlled foreign corporation](/usc/26/988.md?p=a-3-C) (as determined under [paragraph (2)(C)](#c-2-C)) shall be adjusted to also take into account such [taxpayer](/usc/26/1313.md?p=b)’s pro rata share (determined under rules similar to the rules under [section 951(a)(2)](/usc/26/951.md?p=a-2)) of items taken into account in computing the net income or loss set forth on the [applicable financial statement](#b) (as adjusted under rules similar to those that apply in determining [adjusted financial statement income](#a)) of each such [controlled foreign corporation](/usc/26/988.md?p=a-3-C) with respect to which such [taxpayer](/usc/26/1313.md?p=b) is a [United States shareholder](/usc/26/951.md?p=b).
    - (B) **Negative adjustments—** In any case in which the adjustment determined under [subparagraph (A)](#c-3-A) would result in a negative adjustment for such [taxable year](/usc/26/441.md?p=b)—
      - (i) no adjustment shall be made under this paragraph for such [taxable year](/usc/26/441.md?p=b), and
      - (ii) the amount of the adjustment determined under this paragraph for the succeeding [taxable year](/usc/26/441.md?p=b) (determined without regard to this paragraph) shall be reduced by an amount equal to the negative adjustment for such [taxable year](/usc/26/441.md?p=b).
  - (4) **Effectively connected income—** In the case of a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3), to determine [adjusted financial statement income](#a), the principles of [section 882](/usc/26/882.md) shall apply.
  - (5) **Adjustments for certain taxes—** [Adjusted financial statement income](#a) shall be appropriately adjusted to disregard any Federal income taxes, or income, war profits, or excess profits taxes (within the meaning of [section 901](/usc/26/901.md)) with respect to a [foreign](/usc/26/7701.md?p=a-5) country or possession of the [United States](/usc/26/638.md?p=1), which are taken into account on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b). To the extent provided by the [Secretary](/usc/26/7701.md?p=a-11-B), the preceding sentence shall not apply to income, war profits, or excess profits taxes (within the meaning of [section 901](/usc/26/901.md)) that are imposed by a [foreign](/usc/26/7701.md?p=a-5) country or possession of the [United States](/usc/26/638.md?p=1) and taken into account on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b) if the [taxpayer](/usc/26/1313.md?p=b) does not choose to have the benefits of subpart A of part III of subchapter N for the [taxable year](/usc/26/441.md?p=b). The [Secretary](/usc/26/7701.md?p=a-11-B) shall prescribe such regulations or other guidance as may be necessary and appropriate to provide for the proper treatment of current and deferred taxes for purposes of this paragraph, [including](/usc/26/7701.md?p=c) the time at which such taxes are properly taken into account.
  - (6) **Adjustment with respect to disregarded entities—** [Adjusted financial statement income](#a) shall be adjusted to take into account any [adjusted financial statement income](#a) of a disregarded entity owned by the [taxpayer](/usc/26/1313.md?p=b).
  - (7) **Special rule for cooperatives—** In the case of a cooperative to which [section 1381](/usc/26/1381.md) applies, the [adjusted financial statement income](#a) (determined without regard to this paragraph) shall be reduced by the amounts referred to in [section 1382(b)](/usc/26/1382.md?p=b) (relating to patronage [dividends](/usc/26/316.md?p=b-2-A) and per-unit retain allocations) to the extent such amounts were not otherwise taken into account in determining [adjusted financial statement income](#a).
  - (8) **Rules for Alaska native corporations—** [Adjusted financial statement income](#a) shall be appropriately adjusted to allow—
    - (A) cost recovery and depletion attributable to [property](/usc/26/614.md?p=a) the basis of which is determined under section 21(c) of the Alaska Native Claims Settlement Act ([43 U.S.C. 1620(c)](/usc/43/1620.md?p=c)), and
    - (B) deductions for amounts payable made pursuant to section 7(i) or section 7(j) of such Act ([43 U.S.C. 1606(i)](/usc/43/1606.md?p=i) and 1606(j)) only at such time as the deductions are allowed for tax purposes.
  - (9) **Amounts attributable to elections for direct payment of certain credits—** [Adjusted financial statement income](#a) shall be appropriately adjusted to disregard any amount treated as a payment against the tax imposed by subtitle A pursuant to an election under section [48D(d)](/usc/26/48D.md?p=d) or [6417](/usc/26/6417.md), to the extent such amount was not otherwise taken into account under [paragraph (5)](#c-5).
  - (10) **Consistent treatment of mortgage servicing income of taxpayer other than a regulated investment company—**
    - (A) **In general—** [Adjusted financial statement income](#a) shall be adjusted so as not to include any item of income in connection with a mortgage servicing contract any earlier than when such income is included in gross income under any other provision of this chapter.
    - (B) **Rules for amounts not representing reasonable compensation—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall provide regulations to prevent the avoidance of taxes imposed by this chapter with respect to amounts not representing reasonable compensation (as determined by the [Secretary](/usc/26/7701.md?p=a-11-B)) with respect to a mortgage servicing contract.
  - (11) **Adjustment with respect to defined benefit pensions—**
    - (A) **In general—** Except as otherwise provided in rules prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B) in regulations or other guidance, [adjusted financial statement income](#a) shall be—
      - (i) adjusted to disregard any amount of income, cost, or expense that would otherwise be included on the [applicable financial statement](#b) in connection with any [covered benefit plan](#c-11-B),
      - (ii) increased by any amount of income in connection with any such [covered benefit plan](#c-11-B) that is included in the gross income of the [corporation](/usc/26/7701.md?p=a-3) under any other provision of this chapter, and
      - (iii) reduced by deductions allowed under any other provision of this chapter with respect to any such [covered benefit plan](#c-11-B).
    - (B) **Covered benefit plan—** For purposes of this paragraph, the term “covered benefit plan” means—
      - (i) a [defined benefit plan](/usc/26/415.md?p=k-1) (other than a multiemployer plan described in [section 414(f)](/usc/26/414.md?p=f)) if the trust which is part of such plan is an [employees](/usc/26/101.md?p=i-3)’ trust described in [section 401(a)](/usc/26/401.md?p=a) which is exempt from tax under [section 501(a)](/usc/26/501.md?p=a),
      - (ii) any qualified [foreign](/usc/26/7701.md?p=a-5) plan (as defined in [section 404A(e)](/usc/26/404A.md?p=e)), or
      - (iii) any other [defined benefit plan](/usc/26/415.md?p=k-1) which provides post-employment benefits other than pension benefits.
  - (12) **Tax-exempt entities—** In the case of an organization subject to tax under [section 511](/usc/26/511.md), [adjusted financial statement income](#a) shall be appropriately adjusted to only take into account any [adjusted financial statement income](#a)—
    - (A) of an unrelated [trade or business](/usc/26/7701.md?p=a-26) (as defined in [section 513](/usc/26/513.md)) of such organization, or
    - (B) derived from debt-financed [property](/usc/26/614.md?p=a) (as defined in [section 514](/usc/26/514.md)) to the extent that income from such [property](/usc/26/614.md?p=a) is treated as [unrelated business taxable income](/usc/26/512.md?p=a-3-A).
  - (13) **Depreciation—** [Adjusted financial statement income](#a) shall be—
    - (A) reduced by—
      - (i) [depreciation deductions](/usc/26/865.md?p=c-4-C) allowed under [section 167](/usc/26/167.md) with respect to [property](/usc/26/614.md?p=a) to which [section 168](/usc/26/168.md) applies to the extent of the amount allowed as deductions in computing [taxable income](/usc/26/63.md?p=b) for the year, and
      - (ii) any deduction allowed for expenses under [section 263(c)](/usc/26/263.md?p=c) ([including](/usc/26/7701.md?p=c) any deduction for such expenses under section [59(e)](/usc/26/59.md?p=e) or [291(b)(2)](/usc/26/291.md?p=b-2)) with respect to [property](/usc/26/614.md?p=a) described therein to the extent of the amount allowed as deductions in computing [taxable income](/usc/26/63.md?p=b) for the year, and
    - (B) appropriately adjusted—
      - (i) to disregard any amount of—
        - (I) depreciation expense that is taken into account on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b) with respect to such [property](/usc/26/614.md?p=a), and
        - (II) depletion expense that is taken into account on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b) with respect to the intangible drilling and development costs of such [property](/usc/26/614.md?p=a), and
      - (ii) to take into account any other item specified by the [Secretary](/usc/26/7701.md?p=a-11-B) in order to provide that such [property](/usc/26/614.md?p=a) is accounted for in the same manner as it is accounted for under this chapter.
  - (14) **Qualified wireless spectrum—**
    - (A) **In general—** [Adjusted financial statement income](#a) shall be—
      - (i) reduced by amortization deductions allowed under [section 197](/usc/26/197.md) with respect to [qualified wireless spectrum](#c-14-B) to the extent of the amount allowed as deductions in computing [taxable income](/usc/26/63.md?p=b) for the [taxable year](/usc/26/441.md?p=b), and
      - (ii) appropriately adjusted—
        - (I) to disregard any amount of amortization expense that is taken into account on the [taxpayer](/usc/26/1313.md?p=b)’s [applicable financial statement](#b) with respect to such [qualified wireless spectrum](#c-14-B), and
        - (II) to take into account any other item specified by the [Secretary](/usc/26/7701.md?p=a-11-B) in order to provide that such [qualified wireless spectrum](#c-14-B) is accounted for in the same manner as it is accounted for under this chapter.
    - (B) **Qualified wireless spectrum—** For purposes of this paragraph, the term “qualified wireless spectrum” means wireless spectrum which—
      - (i) is used in the [trade or business](/usc/26/7701.md?p=a-26) of a wireless telecommunications carrier, and
      - (ii) was acquired after December 31, 2007, and before the date of enactment of this section.
  - (15) **Secretarial authority to adjust items—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall issue regulations or other guidance to provide for such adjustments to [adjusted financial statement income](#a) as the [Secretary](/usc/26/7701.md?p=a-11-B) determines necessary to carry out the purposes of this section, [including](/usc/26/7701.md?p=c) adjustments—
    - (A) to prevent the omission or duplication of any item, and
    - (B) to carry out the principles of part II of subchapter C of this chapter (relating to corporate liquidations), part III of subchapter C of this chapter (relating to corporate organizations and reorganizations), and part II of subchapter K of this chapter (relating to [partnership](/usc/26/7701.md?p=a-2) contributions and distributions).
- (d) **Deduction for financial statement net operating loss—**
  - (1) **In general—** [Adjusted financial statement income](#a) (determined after application of [subsection (c)](#c) and without regard to this subsection) shall be reduced by an amount equal to the lesser of—
    - (A) the aggregate amount of [financial statement net operating loss](#d-3) carryovers to the [taxable year](/usc/26/441.md?p=b), or
    - (B) 80 percent of [adjusted financial statement income](#a) computed without regard to the deduction allowable under this subsection.
  - (2) **Financial statement net operating loss carryover—** A [financial statement net operating loss](#d-3) for any [taxable year](/usc/26/441.md?p=b) shall be a [financial statement net operating loss](#d-3) carryover to each [taxable year](/usc/26/441.md?p=b) following the [taxable year](/usc/26/441.md?p=b) of the loss. The portion of such loss which shall be carried to subsequent [taxable years](/usc/26/441.md?p=b) shall be the amount of such loss remaining (if any) after the application of [paragraph (1)](#d-1).
  - (3) **Financial statement net operating loss defined—** For purposes of this subsection, the term “financial statement net operating loss” means the amount of the net loss (if any) set forth on the [corporation](/usc/26/7701.md?p=a-3)’s [applicable financial statement](#b) (determined after application of [subsection (c)](#c) and without regard to this subsection) for [taxable years](/usc/26/441.md?p=b) ending after December 31, 2019.
- (e) **Regulations and other guidance—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall provide for such regulations and other guidance as necessary to carry out the purposes of this section, [including](/usc/26/7701.md?p=c) regulations and other guidance relating to the effect of the rules of this section on [partnerships](/usc/26/7701.md?p=a-2) with income taken into account by an [applicable corporation](/usc/26/59.md?p=k-1-A).

# §57. Items of tax preference

- (a) **General rule—** For purposes of this part, the items of tax preference determined under this section are—
  - (1) **Depletion—** With respect to each [property](/usc/26/614.md?p=a) (as defined in [section 614](/usc/26/614.md)), the excess of the deduction for depletion allowable under [section 611](/usc/26/611.md) for the [taxable year](/usc/26/441.md?p=b) over the adjusted basis of the [property](/usc/26/614.md?p=a) at the end of the [taxable year](/usc/26/441.md?p=b) (determined without regard to the depletion deduction for the [taxable year](/usc/26/441.md?p=b)). This paragraph shall not apply to any deduction for depletion computed in accordance with [section 613A(c)](/usc/26/613A.md?p=c).
  - (2) **Intangible drilling costs—**
    - (A) **In general—** With respect to all oil, gas, and geothermal [properties](/usc/26/614.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b), the amount (if any) by which the amount of the excess intangible drilling costs arising in the [taxable year](/usc/26/441.md?p=b) is greater than 65 percent of the net income of the [taxpayer](/usc/26/1313.md?p=b) from oil, gas, and geothermal [properties](/usc/26/614.md?p=a) for the [taxable year](/usc/26/441.md?p=b).
    - (B) **Excess intangible drilling costs—** For purposes of [subparagraph (A)](#a-2-A), the amount of the excess intangible drilling costs arising in the [taxable year](/usc/26/441.md?p=b) is the excess of—
      - (i) the intangible drilling and development costs [paid or incurred](/usc/26/7701.md?p=a-25) in connection with oil, gas, and geothermal wells (other than costs incurred in drilling a nonproductive well) allowable under section [263(c)](/usc/26/263.md?p=c) or [291(b)](/usc/26/291.md?p=b) for the [taxable year](/usc/26/441.md?p=b), over
      - (ii) the amount which would have been allowable for the [taxable year](/usc/26/441.md?p=b) if such costs had been capitalized and [straight line recovery of intangibles](#b-2) (as defined in [subsection (b)](#b)) had been used with respect to such costs.
    - (C) **Net income from oil, gas, and geothermal properties—** For purposes of [subparagraph (A)](#a-2-A), the amount of the net income of the [taxpayer](/usc/26/1313.md?p=b) from oil, gas, and geothermal [properties](/usc/26/614.md?p=a) for the [taxable year](/usc/26/441.md?p=b) is the excess of—
      - (i) the aggregate amount of gross income (within the meaning of [section 613(a)](/usc/26/613.md?p=a)) from all oil, gas, and geothermal [properties](/usc/26/614.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) received or accrued by the [taxpayer](/usc/26/1313.md?p=b) during the [taxable year](/usc/26/441.md?p=b), over
      - (ii) the amount of any deductions allocable to such [properties](/usc/26/614.md?p=a) reduced by the excess described in [subparagraph (B)](#a-2-B) for such [taxable year](/usc/26/441.md?p=b).
    - (D) **Paragraph applied separately with respect to geothermal properties and oil and gas properties—** This paragraph shall be applied separately with respect to—
      - (i) all oil and gas [properties](/usc/26/614.md?p=a) which are not described in [clause (ii)](#a-2-D-ii), and
      - (ii) all [properties](/usc/26/614.md?p=a) which are geothermal deposits (as defined in [section 613(e)(2)](/usc/26/613.md?p=e-2)).
    - (E) **Exception for independent producers—** In the case of any oil or gas well—
      - (i) **In general—** This paragraph shall not apply to any [taxpayer](/usc/26/1313.md?p=b) which is not an integrated oil [company](/usc/26/812.md?p=a) (as defined in [section 291(b)(4)](/usc/26/291.md?p=b-4)).
      - (ii) **Limitation on benefit—** The reduction in [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) by reason of [clause (i)](#a-2-E-i) for any [taxable year](/usc/26/441.md?p=b) shall not exceed 40 percent of the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) for such year determined without regard to [clause (i)](#a-2-E-i) and the alternative tax net operating loss deduction under [section 56(a)(4)](/usc/26/56.md?p=a-4).
  - (3) **Repealed. Pub. L. 100–647, title I, § 1007(b)(14)(B), Nov. 10, 1988, 102 Stat. 3430—**
  - (4) **Repealed. Pub. L. 104–188, title I, § 1616(b)(3), Aug. 20, 1996, 110 Stat. 1856—**
  - (5) **Tax-exempt interest—**
    - (A) **In general—** [Interest](/usc/26/856.md?p=f-1) on [specified private activity bonds](#a-5-C-i) reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such [interest](/usc/26/856.md?p=f-1) were includible in gross income.
    - (B) **Treatment of exempt-interest dividends—** Under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), any exempt-[interest](/usc/26/856.md?p=f-1) [dividend](/usc/26/316.md?p=b-2-A) (as defined in [section 852(b)(5)(A)](/usc/26/852.md?p=b-5-A)) shall be treated as [interest](/usc/26/856.md?p=f-1) on a [specified private activity bond](#a-5-C-i) to the extent of its proportionate share of the [interest](/usc/26/856.md?p=f-1) on such bonds received by the [company](/usc/26/812.md?p=a) paying such [dividend](/usc/26/316.md?p=b-2-A).
    - (C) **Specified private activity bonds—**
      - (i) **In general—** For purposes of this part, the term “specified private activity bond” means any [private activity bond](#a-5-C-ii) (as defined in [section 141](/usc/26/141.md)) which is issued after August 7, 1986, and the [interest](/usc/26/856.md?p=f-1) on which is not includible in gross income under [section 103](/usc/26/103.md).
      - (ii) **Exception for qualified 501(c)(3) bonds—** For purposes of [clause (i)](#a-5-C-i), the term “private activity bond” shall not include any qualified 501(c)(3) bond (as defined in [section 145](/usc/26/145.md)).
      - (iii) **Exception for certain housing bonds—** For purposes of [clause (i)](#a-5-C-i), the term “private activity bond” shall not include any bond issued after the date of the enactment of this clause if such bond is—
        - (I) an [exempt facility bond](/usc/26/1394.md?p=a) issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide qualified residential rental projects (as defined in [section 142(d)](/usc/26/142.md?p=d)),
        - (II) a [qualified mortgage bond](/usc/26/143.md?p=a-1) (as defined in [section 143(a)](/usc/26/143.md?p=a)), or
        - (III) a qualified veterans’ mortgage bond (as defined in [section 143(b)](/usc/26/143.md?p=b)).

      The preceding sentence shall not apply to any refunding bond unless such preceding sentence applied to the refunded bond (or in the case of a series of refundings, the original bond).

      - (iv) **Exception for refundings—** For purposes of [clause (i)](#a-5-C-i), the term “[private activity bond](#a-5-C-ii)” shall not include any refunding bond (whether a current or advance refunding) if the refunded bond (or in the case of a series of refundings, the original bond) was issued before August 8, 1986.
      - (v) **Certain bonds issued before September 1, 1986—** For purposes of this subparagraph, a bond issued before September 1, 1986, shall be treated as issued before August 8, 1986, unless such bond would be a [private activity bond](#a-5-C-ii) if—
        - (I) paragraphs [(1)](/usc/26/141.md?p=b-1) and [(2)](/usc/26/141.md?p=b-2) of section 141(b) were applied by substituting “25 percent” for “10 percent” each place it appears,
        - (II) paragraphs [(3)](/usc/26/141.md?p=b-3), [(4)](/usc/26/141.md?p=b-4), and [(5)](/usc/26/141.md?p=b-5) of section 141(b) did not apply, and
        - (III) [subparagraph (B)](/usc/26/141.md?p=c-1-B) of section 141(c)(1) did not apply.
      - (vi) **Exception for bonds issued in 2009 and 2010—**
        - (I) **In general—** For purposes of [clause (i)](#a-5-C-i), the term “[private activity bond](#a-5-C-ii)” shall not include any bond issued after December 31, 2008, and before January 1, 2011.
        - (II) **Treatment of refunding bonds—** For purposes of [subclause (I)](#a-5-C-vi-I), a refunding bond (whether a current or advance refunding) shall be treated as issued on the date of the issuance of the refunded bond (or in the case of a series of refundings, the original bond).
        - (III) **Exception for certain refunding bonds—** [Subclause (II)](#a-5-C-vi-II) shall not apply to any refunding bond which is issued to refund any bond which was issued after December 31, 2003, and before January 1, 2009.
  - (6) **Accelerated depreciation or amortization on certain property placed in service before January 1, 1987—** The amounts which would be treated as items of tax preference with respect to the [taxpayer](/usc/26/1313.md?p=b) under paragraphs (2), (3), (4), and (12) of this subsection (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986). The preceding sentence shall not apply to any [property](/usc/26/614.md?p=a) to which section [56(a)(1)](/usc/26/56.md?p=a-1) or [(5)](/usc/26/56.md?p=a-5) applies.
  - (7) **Exclusion for gains on sale of certain small business stock—** In the case of [stock](/usc/26/7701.md?p=a-7) acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount equal to 7 percent of the amount excluded from gross income for the [taxable year](/usc/26/441.md?p=b) under [section 1202](/usc/26/1202.md).
- (b) **Straight line recovery of intangibles defined—** For purposes of [paragraph (2)](#a-2) of subsection (a)—
  - (1) **In general—** The term “straight line recovery of intangibles”, when used with respect to intangible drilling and development costs for any well, means (except in the case of an election under [paragraph (2)](#b-2)) ratable amortization of such costs over the 120-month period beginning with the month in which production from such well begins.
  - (2) **Election—** If the [taxpayer](/usc/26/1313.md?p=b) elects with respect to the intangible drilling and development costs for any well, the term “[straight line recovery of intangibles](#b-1)” means any method which would be permitted for purposes of determining cost depletion with respect to such well and which is selected by the [taxpayer](/usc/26/1313.md?p=b) for purposes of [subsection (a)(2)](#a-2).

# §58. Denial of certain losses

- (a) **Denial of farm loss—**
  - (1) **In general—** For purposes of computing the amount of the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) for any [taxable year](/usc/26/441.md?p=b) of a [taxpayer](/usc/26/1313.md?p=b) other than a [corporation](/usc/26/7701.md?p=a-3)—
    - (A) **Disallowance of farm loss—** No loss of the [taxpayer](/usc/26/1313.md?p=b) for such [taxable year](/usc/26/441.md?p=b) from any [tax shelter farm activity](#a-2) shall be allowed.
    - (B) **Deduction in succeeding taxable year—** Any loss from a [tax shelter farm activity](#a-2) disallowed under [subparagraph (A)](#a-1-A) shall be treated as a deduction allocable to such activity in the 1st succeeding [taxable year](/usc/26/441.md?p=b).
  - (2) **Tax shelter farm activity—** For purposes of this subsection, the term “tax shelter farm activity” means—
    - (A) any farming syndicate as defined in [section 461(k)](/usc/26/461.md?p=k), and
    - (B) any other activity consisting of farming which is a passive activity (within the meaning of [section 469(c)](/usc/26/469.md?p=c)).
  - (3) **Determination of loss—** In determining the amount of the loss from any [tax shelter farm activity](#a-2), the adjustments of sections [56](/usc/26/56.md) and [57](/usc/26/57.md) shall apply.
- (b) **Disallowance of passive activity loss—** In computing the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) of the [taxpayer](/usc/26/1313.md?p=b) for any [taxable year](/usc/26/441.md?p=b), [section 469](/usc/26/469.md) shall apply, except that in applying [section 469](/usc/26/469.md)—
  - (1) the adjustments of sections [56](/usc/26/56.md) and [57](/usc/26/57.md) shall apply, and
  - (2) in lieu of applying [section 469(j)(7)](/usc/26/469.md?p=j-7), the passive activity loss of a [taxpayer](/usc/26/1313.md?p=b) shall be computed without regard to [qualified housing interest](/usc/26/56.md?p=e-1) (as defined in [section 56(e)](/usc/26/56.md?p=e)).
- (c) **Special rules—** For purposes of this section—
  - (1) **Special rule for insolvent taxpayers—**
    - (A) **In general—** The amount of losses to which subsection [(a)](#a) or [(b)](#b) applies shall be reduced by the amount (if any) by which the [taxpayer](/usc/26/1313.md?p=b) is [insolvent](#c-1-B) as of the close of the [taxable year](/usc/26/441.md?p=b).
    - (B) **Insolvent—** For purposes of this paragraph, the term “insolvent” means the excess of liabilities over the fair market value of assets.
  - (2) **Loss allowed for year of disposition of farm shelter activity—** If the [taxpayer](/usc/26/1313.md?p=b) disposes of his entire [interest](/usc/26/856.md?p=f-1) in any tax shelter farm activity during any [taxable year](/usc/26/441.md?p=b), the amount of the loss attributable to such activity (determined after carryovers under [subsection (a)(1)(B)](#a-1-B)) shall (to the extent otherwise allowable) be allowed for such [taxable year](/usc/26/441.md?p=b) in computing [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) and not treated as a loss from a tax shelter farm activity.

# §59. Other definitions and special rules

- (a) **Alternative minimum tax foreign tax credit—** For purposes of this part—
  - (1) **In general—** The alternative minimum tax [foreign](/usc/26/7701.md?p=a-5) tax credit for any [taxable year](/usc/26/441.md?p=b) shall be the credit which would be determined under [section 27](/usc/26/27.md) for such [taxable year](/usc/26/441.md?p=b) if—
    - (A) the [pre-credit tentative minimum tax](#a-2) were the tax against which such credit was taken for purposes of [section 904](/usc/26/904.md) for the [taxable year](/usc/26/441.md?p=b) and all prior [taxable years](/usc/26/441.md?p=b) beginning after December 31, 1986,
    - (B) [section 904](/usc/26/904.md) were applied on the basis of [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) instead of [taxable income](/usc/26/63.md?p=b), and
    - (C) the [determination](/usc/26/1377.md?p=b-2) of whether any income is high-taxed income for purposes of [section 904(d)(2)](/usc/26/904.md?p=d-2) were made on the basis of the applicable rate specified in [section 55(b)(1)](/usc/26/55.md?p=b-1) in lieu of the highest rate of tax specified in [section 1](/usc/26/1.md).
  - (2) **Pre-credit tentative minimum tax—** For purposes of this subsection, the term “pre-credit tentative minimum tax” means the amount determined under the first sentence of [section 55(b)(1)(A)](/usc/26/55.md?p=b-1-A).
  - (3) **Election to use simplified section 904 limitation—**
    - (A) **In general—** In determining the alternative minimum tax [foreign](/usc/26/7701.md?p=a-5) tax credit for any [taxable year](/usc/26/441.md?p=b) to which an election under this paragraph applies—
      - (i) [subparagraph (B)](#a-1-B) of paragraph (1) shall not apply, and
      - (ii) the limitation of [section 904](/usc/26/904.md) shall be based on the proportion which—
        - (I) the [taxpayer](/usc/26/1313.md?p=b)’s [taxable income](/usc/26/63.md?p=b) (as determined for purposes of the regular tax) from sources without the [United States](/usc/26/638.md?p=1) (but not in excess of the [taxpayer](/usc/26/1313.md?p=b)’s entire [alternative minimum taxable income](/usc/26/55.md?p=b-1-D)), bears to
        - (II) the [taxpayer](/usc/26/1313.md?p=b)’s entire [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) for the [taxable year](/usc/26/441.md?p=b).
    - (B) **Election—**
      - (i) **In general—** An election under this paragraph may be made only for the [taxpayer](/usc/26/1313.md?p=b)’s first [taxable year](/usc/26/441.md?p=b) which begins after December 31, 1997, and for which the [taxpayer](/usc/26/1313.md?p=b) claims an alternative minimum tax [foreign](/usc/26/7701.md?p=a-5) tax credit.
      - (ii) **Election revocable only with consent—** An election under this paragraph, once made, shall apply to the [taxable year](/usc/26/441.md?p=b) for which made and all subsequent [taxable years](/usc/26/441.md?p=b) unless revoked with the consent of the [Secretary](/usc/26/7701.md?p=a-11-B).
- (b) **Repealed. Pub. L. 115–97, title I, § 12001(b)(10), Dec. 22, 2017, 131 Stat. 2093—**
- (c) **Treatment of estates and trusts—** In the case of any estate or trust, the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) of such estate or trust and any beneficiary thereof shall be determined by applying part I of subchapter J with the adjustments provided in this part.
- (d) **Apportionment of differently treated items in case of certain entities—**
  - (1) **In general—** The [differently treated items](#d-2) for the [taxable year](/usc/26/441.md?p=b) shall be apportioned (in accordance with regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B))—
    - (A) **Regulated investment companies and real estate investment trusts—** In the case of a [regulated investment company](/usc/26/851.md?p=a) to which part I of subchapter M applies or a real estate investment [company](/usc/26/812.md?p=a) to which part II of subchapter M applies, between such [company](/usc/26/812.md?p=a) or trust and [shareholders](/usc/26/543.md?p=a-4) and holders of beneficial [interest](/usc/26/856.md?p=f-1) in such [company](/usc/26/812.md?p=a) or trust.
    - (B) **Common trust funds—** In the case of a [common trust fund](/usc/26/584.md?p=a) (as defined in [section 584(a)](/usc/26/584.md?p=a)), pro rata among the participants of such [fund](/usc/26/851.md?p=g-2).
  - (2) **Differently treated items—** For purposes of this section, the term “differently treated item” means any item of tax preference or any other item which is treated differently for purposes of this part than for purposes of computing the regular tax.
- (e) **Optional 10-year writeoff of certain tax preferences—**
  - (1) **In general—** For purposes of this title, any [qualified expenditure](#e-2) to which an election under this paragraph applies shall be allowed as a deduction ratably over the 10-year period (3-year period in the case of circulation expenditures described in [section 173](/usc/26/173.md)) beginning with the [taxable year](/usc/26/441.md?p=b) in which such expenditure was made (or, in the case of a [qualified expenditure](#e-2) described in [paragraph (2)(C)](#e-2-C), over the 60-month period beginning with the month in which such expenditure was [paid or incurred](/usc/26/7701.md?p=a-25)).
  - (2) **Qualified expenditure—** For purposes of this subsection, the term “qualified expenditure” means any amount which, but for an election under this subsection, would have been allowable as a deduction (determined without regard to [section 291](/usc/26/291.md)) for the [taxable year](/usc/26/441.md?p=b) in which [paid or incurred](/usc/26/7701.md?p=a-25) under—
    - (A) [section 173](/usc/26/173.md) (relating to circulation expenditures),
    - (B) [section 174A(a)](/usc/26/174A.md?p=a) (relating to [domestic](/usc/26/7701.md?p=a-4) research or experimental expenditures),
    - (C) [section 263(c)](/usc/26/263.md?p=c) (relating to intangible drilling and development expenditures),
    - (D) [section 616(a)](/usc/26/616.md?p=a) (relating to development expenditures), or
    - (E) [section 617(a)](/usc/26/617.md?p=a) (relating to mining exploration expenditures).
  - (3) **Other sections not applicable—** Except as provided in this subsection, no deduction shall be allowed under any other section for any [qualified expenditure](#e-2) to which an election under this subsection applies.
  - (4) **Election—**
    - (A) **In general—** An election may be made under [paragraph (1)](#e-1) with respect to any portion of any [qualified expenditure](#e-2).
    - (B) **Revocable only with consent—** Any election under this subsection may be revoked only with the consent of the [Secretary](/usc/26/7701.md?p=a-11-B).
    - (C) **Partners and shareholders of S corporations—** In the case of a [partnership](/usc/26/7701.md?p=a-2), any election under [paragraph (1)](#e-1) shall be made separately by each [partner](/usc/26/761.md?p=b) with respect to the [partner](/usc/26/761.md?p=b)’s allocable share of any [qualified expenditure](#e-2). A similar rule shall apply in the case of an [S corporation](/usc/26/1361.md?p=a-1) and its [shareholders](/usc/26/543.md?p=a-4).
  - (5) **Dispositions—**
    - (A) **Application of section 1254—** In the case of any disposition of [property](/usc/26/614.md?p=a) to which [section 1254](/usc/26/1254.md) applies (determined without regard to this section), any deduction under [paragraph (1)](#e-1) with respect to amounts which are allocable to such [property](/usc/26/614.md?p=a) shall, for purposes of [section 1254](/usc/26/1254.md), be treated as a deduction allowable under section [263(c)](/usc/26/263.md?p=c), [616(a)](/usc/26/616.md?p=a), or [617(a)](/usc/26/617.md?p=a), whichever is appropriate.
    - (B) **Application of section 617(d)—** In the case of any disposition of mining [property](/usc/26/614.md?p=a) to which [section 617(d)](/usc/26/617.md?p=d) applies (determined without regard to this subsection), any deduction under [paragraph (1)](#e-1) with respect to amounts which are allocable to such [property](/usc/26/614.md?p=a) shall, for purposes of [section 617(d)](/usc/26/617.md?p=d), be treated as a deduction allowable under [section 617(a)](/usc/26/617.md?p=a).
  - (6) **Amounts to which election apply not treated as tax preference—** Any portion of any [qualified expenditure](#e-2) to which an election under [paragraph (1)](#e-1) applies shall not be treated as an item of tax preference under [section 57(a)](/usc/26/57.md?p=a) and [section 56](/usc/26/56.md) shall not apply to such expenditure.
- (f) **Repealed. Pub. L. 115–97, title I, § 12001(b)(10), Dec. 22, 2017, 131 Stat. 2093—**
- (g) **Tax benefit rule—** The [Secretary](/usc/26/7701.md?p=a-11-B) may prescribe regulations under which [differently treated items](#d-2) shall be properly adjusted where the tax treatment giving rise to such items will not result in the reduction of the [taxpayer](/usc/26/1313.md?p=b)’s regular tax for the [taxable year](/usc/26/441.md?p=b) for which the item is taken into account or for any other [taxable year](/usc/26/441.md?p=b).
- (h) **Coordination with certain limitations—** The limitations of sections [704(d)](/usc/26/704.md?p=d), [465](/usc/26/465.md), and [1366(d)](/usc/26/1366.md?p=d) (and such other provisions as may be specified in regulations) shall be applied for purposes of computing the [alternative minimum taxable income](/usc/26/55.md?p=b-1-D) of the [taxpayer](/usc/26/1313.md?p=b) for the [taxable year](/usc/26/441.md?p=b) with the adjustments of sections [56](/usc/26/56.md), [57](/usc/26/57.md), and [58](/usc/26/58.md).
- (i) **Special rule for amounts treated as tax preference—** For purposes of this subtitle (other than this part), any amount shall not fail to be treated as wholly exempt from tax imposed by this subtitle solely by reason of being included in [alternative minimum taxable income](/usc/26/55.md?p=b-1-D).
- (j) **Treatment of unearned income of minor children—**
  - (1) **In general—** In the case of a child to whom [section 1(g)](/usc/26/1.md?p=g) applies, the exemption amount for purposes of [section 55](/usc/26/55.md) shall not exceed the sum of—
    - (A) such child’s earned income (as defined in [section 911(d)(2)](/usc/26/911.md?p=d-2)) for the [taxable year](/usc/26/441.md?p=b), plus
    - (B) $5,000.
  - (2) **Inflation adjustment—** In the case of any [taxable year](/usc/26/441.md?p=b) beginning in a [calendar year](/usc/26/441.md?p=d) after 1998, the dollar amount in [paragraph (1)(B)](#j-1-B) shall be increased by an amount equal to the product of—
    - (A) such dollar amount, and
    - (B) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the [calendar year](/usc/26/441.md?p=d) in which the [taxable year](/usc/26/441.md?p=b) begins, determined by substituting “1997” for “2016” in subparagraph (A)(ii) thereof.

    If any increase determined under the preceding sentence is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.

- (k) **Applicable corporation—** For purposes of this part—
  - (1) **Applicable corporation defined—**
    - (A) **In general—** The term “applicable corporation” means, with respect to any [taxable year](/usc/26/441.md?p=b), any [corporation](/usc/26/7701.md?p=a-3) (other than an [S corporation](/usc/26/1361.md?p=a-1), a [regulated investment company](/usc/26/851.md?p=a), or a [real estate investment trust](/usc/26/856.md?p=a)) which meets the average annual adjusted financial statement income test of [subparagraph (B)](#k-1-B) for one or more [taxable years](/usc/26/441.md?p=b) which—
      - (i) are prior to such [taxable year](/usc/26/441.md?p=b), and
      - (ii) end after December 31, 2021.
    - (B) **Average annual adjusted financial statement income test—** For purposes of this subsection—
      - (i) a [corporation](/usc/26/7701.md?p=a-3) meets the average annual adjusted financial statement income test for a [taxable year](/usc/26/441.md?p=b) if the average annual adjusted financial statement income of such [corporation](/usc/26/7701.md?p=a-3) (determined without regard to [section 56A(d)](/usc/26/56A.md?p=d)) for the 3-taxable-year period ending with such [taxable year](/usc/26/441.md?p=b) exceeds $1,000,000,000, and
      - (ii) in the case of a [corporation](/usc/26/7701.md?p=a-3) described in [paragraph (2)](#k-2), such [corporation](/usc/26/7701.md?p=a-3) meets the average annual adjusted financial statement income test for a [taxable year](/usc/26/441.md?p=b) if—
        - (I) the [corporation](/usc/26/7701.md?p=a-3) meets the requirements of [clause (i)](#k-1-B-i) for such [taxable year](/usc/26/441.md?p=b) (determined after the application of [paragraph (2)](#k-2)), and
        - (II) the average annual adjusted financial statement income of such [corporation](/usc/26/7701.md?p=a-3) (determined without regard to the application of [paragraph (2)](#k-2) and without regard to [section 56A(d)](/usc/26/56A.md?p=d)) for the 3-taxable-year-period ending with such [taxable year](/usc/26/441.md?p=b) is $100,000,000 or more.
    - (C) **Exception—** Notwithstanding [subparagraph (A)](#k-1-A), the term “[applicable corporation](#k-1-A)” shall not include any [corporation](/usc/26/7701.md?p=a-3) which otherwise meets the requirements of [subparagraph (A)](#k-1-A) if—
      - (i) such [corporation](/usc/26/7701.md?p=a-3)—
        - (I) has a change in ownership, or
        - (II) has a specified number (to be determined by the [Secretary](/usc/26/7701.md?p=a-11-B) and which shall, as appropriate, take into account the facts and circumstances of the [taxpayer](/usc/26/1313.md?p=b)) of consecutive [taxable years](/usc/26/441.md?p=b), [including](/usc/26/7701.md?p=c) the most recent [taxable year](/usc/26/441.md?p=b), in which the [corporation](/usc/26/7701.md?p=a-3) does not meet the average annual adjusted financial statement income test of [subparagraph (B)](#k-1-B), and
      - (ii) the [Secretary](/usc/26/7701.md?p=a-11-B) determines that it would not be appropriate to continue to treat such [corporation](/usc/26/7701.md?p=a-3) as an [applicable corporation](#k-1-A).

      The preceding sentence shall not apply to any [corporation](/usc/26/7701.md?p=a-3) if, after the [Secretary](/usc/26/7701.md?p=a-11-B) makes the [determination](/usc/26/1377.md?p=b-2) described in [clause (ii)](#k-1-C-ii), such [corporation](/usc/26/7701.md?p=a-3) meets the average annual adjusted financial statement income test of [subparagraph (B)](#k-1-B) for any [taxable year](/usc/26/441.md?p=b) beginning after the first [taxable year](/usc/26/441.md?p=b) for which such [determination](/usc/26/1377.md?p=b-2) applies.

    - (D) **Special rules for determining applicable corporation status—** Solely for purposes of determining whether a [corporation](/usc/26/7701.md?p=a-3) is an [applicable corporation](#k-1-A) under this paragraph, all adjusted financial statement income of [persons](/usc/26/7701.md?p=a-1) treated as a single employer with such [corporation](/usc/26/7701.md?p=a-3) under subsection [(a)](/usc/26/52.md?p=a) or [(b)](/usc/26/52.md?p=b) of section 52 shall be treated as adjusted financial statement income of such [corporation](/usc/26/7701.md?p=a-3), and adjusted financial statement income of such [corporation](/usc/26/7701.md?p=a-3) shall be determined without regard to paragraphs [(2)(D)(i)](/usc/26/56A.md?p=c-2-D-i) and [(11)](/usc/26/56A.md?p=c-11) of section 56A(c).
    - (E) **Other special rules—**
      - (i) **Corporations in existence for less than 3 years—** If the [corporation](/usc/26/7701.md?p=a-3) was in existence for less than 3-[taxable years](/usc/26/441.md?p=b), [subparagraph (B)](#k-1-B) shall be applied on the basis of the period during which such [corporation](/usc/26/7701.md?p=a-3) was in existence.
      - (ii) **Short taxable years—** Adjusted financial statement income for any [taxable year](/usc/26/441.md?p=b) of less than 12 months shall be annualized by multiplying the adjusted financial statement income for the short period by 12 and dividing the result by the number of months in the short period.
      - (iii) **Treatment of predecessors—** Any reference in this subparagraph to a [corporation](/usc/26/7701.md?p=a-3) shall include a reference to any predecessor of such [corporation](/usc/26/7701.md?p=a-3).
  - (2) **Special rule for foreign-parented multinational groups—**
    - (A) **In general—** If a [corporation](/usc/26/7701.md?p=a-3) is a member of a [foreign-parented multinational group](#k-2-B) for any [taxable year](/usc/26/441.md?p=b), then, solely for purposes of determining whether such [corporation](/usc/26/7701.md?p=a-3) meets the average annual adjusted financial statement income test under [paragraph (1)(B)(ii)(I)](#k-1-B-ii-I) for such [taxable year](/usc/26/441.md?p=b), the adjusted financial statement income of such [corporation](/usc/26/7701.md?p=a-3) for such [taxable year](/usc/26/441.md?p=b) shall include the adjusted financial statement income of all members of such group. Solely for purposes of this subparagraph, adjusted financial statement income shall be determined without regard to paragraphs [(2)(D)(i)](/usc/26/56A.md?p=c-2-D-i), [(3)](/usc/26/56A.md?p=c-3), [(4)](/usc/26/56A.md?p=c-4), and [(11)](/usc/26/56A.md?p=c-11) of section 56A(c).
    - (B) **Foreign-parented multinational group—** For purposes of [subparagraph (A)](#k-2-A), the term “foreign-parented multinational group” means, with respect to any [taxable year](/usc/26/441.md?p=b), two or more entities if—
      - (i) at least one entity is a [domestic](/usc/26/7701.md?p=a-4) [corporation](/usc/26/7701.md?p=a-3) and another entity is a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3),
      - (ii) such entities are included in the same applicable financial statement with respect to such year, and
      - (iii) either—
        - (I) the common parent of such entities is a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3), or
        - (II) if there is no common parent, the entities are treated as having a common parent which is a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3) under [subparagraph (D)](#k-2-D).
    - (C) **Foreign corporations engaged in a trade or business within the United States—** For purposes of this paragraph, if a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3) is engaged in a [trade or business](/usc/26/7701.md?p=a-26) within the [United States](/usc/26/638.md?p=1), such [trade or business](/usc/26/7701.md?p=a-26) shall be treated as a separate [domestic](/usc/26/7701.md?p=a-4) [corporation](/usc/26/7701.md?p=a-3) that is wholly owned by the [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3).
    - (D) **Other rules—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall, applying the principles of this section, prescribe rules for the application of this paragraph, [including](/usc/26/7701.md?p=c) rules for the [determination](/usc/26/1377.md?p=b-2) of—
      - (i) the entities (if any) which are to be to be treated under [subparagraph (B)(iii)(II)](#k-2-B-iii-II) as having a common parent which is a [foreign](/usc/26/7701.md?p=a-5) [corporation](/usc/26/7701.md?p=a-3),
      - (ii) the entities to be included in a [foreign-parented multinational group](#k-2-B), and
      - (iii) the common parent of a [foreign-parented multinational group](#k-2-B).
  - (3) **Regulations or other guidance—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall provide regulations or other guidance for the purposes of carrying out this subsection, [including](/usc/26/7701.md?p=c) regulations or other guidance—
    - (A) providing a simplified method for determining whether a [corporation](/usc/26/7701.md?p=a-3) meets the requirements of [paragraph (1)](#k-1), and

      ’(B)[^1] addressing the application of this subsection to a [corporation](/usc/26/7701.md?p=a-3) that experiences a change in ownership.

- (l) **Corporate AMT foreign tax credit—**
  - (1) **In general—** For purposes of this part, if an [applicable corporation](#k-1-A) chooses to have the benefits of subpart A of part III of subchapter N for any [taxable year](/usc/26/441.md?p=b), the corporate AMT [foreign](/usc/26/7701.md?p=a-5) tax credit for the [taxable year](/usc/26/441.md?p=b) of the [applicable corporation](#k-1-A) is an amount equal to sum of—
    - (A) the lesser of—
      - (i) the aggregate of the [applicable corporation](#k-1-A)’s pro rata share (as determined under [section 56A(c)(3)](/usc/26/56A.md?p=c-3)) of the amount of income, war profits, and excess profits taxes (within the meaning of [section 901](/usc/26/901.md)) imposed by any [foreign](/usc/26/7701.md?p=a-5) country or possession of the [United States](/usc/26/638.md?p=1) which are—
        - (I) taken into account on the applicable financial statement of each [controlled foreign corporation](/usc/26/988.md?p=a-3-C) with respect to which the [applicable corporation](#k-1-A) is a [United States shareholder](/usc/26/951.md?p=b), and
        - (II) [paid or accrued](/usc/26/7701.md?p=a-25) (for Federal income tax purposes) by each such [controlled foreign corporation](/usc/26/988.md?p=a-3-C), or
      - (ii) the product of the amount of the adjustment under [section 56A(c)(3)](/usc/26/56A.md?p=c-3) and the percentage specified in [section 55(b)(2)(A)(i)](/usc/26/55.md?p=b-2-A-i), and
    - (B) in the case of an [applicable corporation](#k-1-A) that is a [domestic](/usc/26/7701.md?p=a-4) [corporation](/usc/26/7701.md?p=a-3), the amount of income, war profits, and excess profits taxes (within the meaning of [section 901](/usc/26/901.md)) imposed by any [foreign](/usc/26/7701.md?p=a-5) country or possession of the [United States](/usc/26/638.md?p=1) to the extent such taxes are—
      - (i) taken into account on the [applicable corporation](#k-1-A)’s applicable financial statement, and
      - (ii) [paid or accrued](/usc/26/7701.md?p=a-25) (for Federal income tax purposes) by the [applicable corporation](#k-1-A).
  - (2) **Carryover of excess tax paid—** For any [taxable year](/usc/26/441.md?p=b) for which an [applicable corporation](#k-1-A) chooses to have the benefits of subpart A of part III of subchapter N, the excess of the amount described in [paragraph (1)(A)(i)](#l-1-A-i) over the amount described in [paragraph (1)(A)(ii)](#l-1-A-ii) shall increase the amount described in [paragraph (1)(A)(i)](#l-1-A-i) in any of the first 5 succeeding [taxable years](/usc/26/441.md?p=b) to the extent not taken into account in a prior [taxable year](/usc/26/441.md?p=b).
  - (3) **Regulations or other guidance—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall provide for such regulations or other guidance as is necessary to carry out the purposes of this subsection.